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One down, one to go.

With federal Finance Minister Ralph Goodale's first budget this week and his provincial counterpart, Harry Van Mulligen, set to deliver his first budget next week, the province's fiscal picture is getting clearer by the day.

While the picture is getting clearer, the forecast is anything but clear for Saskatchewan taxpayers.

Unlike Goodale's balanced budget, which contained no tax increases and sprinkled the spending around on health care, farmers, provinces and municipalities, defence and foreign aid, Van Mulligen's budget will have no such silver lining.

Instead, expect a steady downpour of bad news: tax hikes (at least one percentage point on the provincial sales tax), spending cuts (everything but health) and a larger deficit ($463.3 million and counting).

Also expect the Calvert NDP to blast the federal Liberals for cheating the province out of $100 million a year through resource revenue claw backs from equalization payments.

(Goodale will likely get little, if any, credit for authorizing a $120 million, one time payment due to an error in calculating equalization payments from 1999 to 2002.)

Calvert and company have a point about equalization.

As Queen's University economist Thomas Courchene recently pointed out, the province has seen its resource revenues clawed back in excess of 100 per cent in the late 1990s and early 2000s.

Clearly, there's something wrong when an agriculture dependent province like Saskatchewan receives substantially less in equalization payments than Manitoba and Quebec (which have more diversified economies as well as abundant hydroelectric and mineral resources).

Having said that, the Calvert government cannot continue to blame all of its fiscal woes on the federal government.

As Goodale and other commentators have noted, the NDP government ramped up spending in 2000 01, at a time when the province was enjoying record own source revenues.

The fact that spending has continued to increase unabated, while revenues have failed to keep pace, should come as no surprise to the NDP government.

What is perhaps more surprising are some of the unusual policy prescriptions the Calvert government has received to deal with its fiscal situation.

For example, the Canadian Centre for Policy Alternatives is calling on the NDP government to "address its fiscal deficit by raising higher (sic) income taxes and resource royalties, instead of cutting public services.''

In fact, the CCPA says higher resource royalties would have the double benefit of causing resource production to contract, allowing the province to retain more equalization revenues, as well as raise more revenue from royalties.

"The interaction of equalization payments and resource production provides a further rationale for higher royalties, not an argument against them,'' the CCPA study says.

In other words, let's stop producing so much oil and gas, so we can get more equalization money from Ottawa.

This sort of analysis blithely ignores the economic benefits of a healthy oil and gas sector which employs 22,000 people, generates about $1 billion annually in revenues for the province and accounts for about eight per cent of GDP, slightly more than agriculture.

The industry, which invests $1.5 billion in the province annually, is also one of the fastest growing sectors of the economy.

The government estimates royalty changes introduced in late 2002 will generate $4.3 billion more in investment, 40,000 more jobs and $650 million more in revenues over the next 10 years than if royalties were left alone.Yet, the CCPA says hiking royalty rates, collecting higher revenues and transferring them to other areas of the economy would generate more jobs than the oil patch would.

So who's right?

All I know is that with an economy that's not firing on all cylinders, the last thing we should do is pull the plug on the one economic cylinder that is firing.

BRUCE JOHNSTONE
Bruce Johnstone is the Leader PostÕs financial editor.